How personal biases kill business ideas 

Story has it that when the late M. K. O. Abiola got a lucrative job in a brewery in Nigeria, as an accountant, his late father, a devout Muslim, advised him not to take up the appointment. His father believed, as a Muslim, Abiola should not work in alcohol manufacturing company. As an estate surveyor and valuer, I discussed pet foods manufacturing business, which involves the production of dog and cat foods using cow meat, with an Indian friend. He refused the idea, saying a Hindu should not have anything to do with killing cows. “It is forbidden”. In business, beliefs like these are called personal biases. Personal biases refer to learned beliefs, opinions, or attitudes that people are unaware of and often reinforced stereotypes. These personal biases are real, unintentional, automatic, and inbuilt, leading to incorrect business judgments.

Human beings often act in irrational and unexpected ways when it comes to business decisions, spending money, and financing projects. Behavioral finance tries to explain the difference between what economic theories predict people will do and what they actually do when they are faced with reality. At times, this comes down to the specific biases people tend to have. Personal bias has been one of the factors guiding business decisions since time immemorial. Most business leaders reported a form of personal bias or others have affected their decision-making in the past. Relying on history or trend are common practices in commodities brokerage, real estate investment and stock trading. In some cases, predictions on these commodities and stocks may not follow history or trend.

What has business got to do with personal beliefs? Are businesses the same as their owners? Cognitive and emotional biases are difficult to separate from human beings. Cognitive bias is an unconscious error in thinking that arises from the way people perceive the world and the information around them that determines how they make decisions. Emotional biases are unlike cognitive biases; emotional biases primarily focus on how the brain functions as opposed to feelings. Common types of cognitive biases include confirmation bias, hindsight bias, confidence bias, and framing bias. Overcoming cognitive biases is a critical step in individuals improving personal growth and other areas of their lives, such as running a business or investing in shares or real estate. The bias that you have when you have used historic data to predict an event is called confirmation bias.

Cognitive bias has affected so many boardroom decisions and it is important that business leaders overcome it. Ways to overcome cognitive bias include, first, being aware that biases occur in our day-to-day decisions, being aware of cognitive biases that can affect our decisions, analyzing past decisions and why they are made, diversifying the individuals around you that can influence your decisions, seeking change, and making different decisions as necessary. There are two main types of biases that people commit causing them to deviate from rational decision-making: cognitive and emotional. Cognitive errors result from incomplete information or the inability to analyze the information that is available. These cognitive errors can be classified as either belief perseverance or processing errors.

Belief perseverance can be described as an individual’s attempt to avoid cognitive dissonance (inconsistent thoughts and beliefs); the mental conflict arising from information that contradicts one’s existing beliefs. This, for example, could take the form of reading information or following news that supports what you already believe even when they may be wrong. For example, believing you need to know people to win contracts in Nigeria. In most cases people fail to recognize business opportunities because they have biases or cannot process business data correctly. There are untapped business opportunities all over the world. We only need to drop our biases to identify them and exploit the opportunities.

Processing errors occur when an individual fails to manage and organise information properly. This can be due in part to the mental effort required to compute and analyse data. These biases have a profound effect on how individuals view the world and how they make decisions within the world they perceive, even if some of these decisions are not in their best interest. Conservatism bias is where people emphasise original, already existing information over new data. It is about bad change management. This can make decision-makers slow to react to new, critical information and place too much premium on existing data. When it comes to business decisions, new information should be looked at carefully to determine its value.

Base rate neglect is the opposite of conservatism bias, whereby people put too little emphasis on the old or existing information. This can be damaging as previous information has most often been vetted, tested, and trusted. It also brings reliability and understanding in a variety of processes that may allow for efficiency. This is not to say that new or improved methods should be ignored for conventional or traditional methods that work but may be outdated. Confirmation bias is where people seek information that affirms existing beliefs while discounting or discarding information that might contradict them. This is a tough bias to overcome, but actively seeking out contradictory information or contrarian opinions can help to eliminate it. Sample size neglect is a bias caused due to error of generalisation.

Hindsight bias occurs when people perceive actual outcomes as reasonable and expected, but only after the fact. Hindsight is usually reliable! With hindsight, people tend to overestimate the accuracy of their forecasts and can lead them to take on too much risk. Keeping a detailed record of all forecasts and their outcomes can bring this bias to the attention of business leaders. To stop cognitive bias, one must be aware of the bias. Analysing your decision-making history, why you chose one decision over another, and how that might relate to a bias. From there, try making different but smart decisions, reflect on yourself as an individual, strive for growth and understanding, and take notes of previous decisions and how those decisions can be reviewed. Experience is the best teacher.

All business leaders have cognitive biases that are embedded in their heads even before they became business leaders. These biases are results of their beliefs, upbringing, experiences, and relationships. Personal biases may have helped us to navigate difficult times in the past, but they can be a hindrance to our business growth. Taking steps to be aware of and minimise personal biases is a healthy step in business growth and development.